Employee democracy: a secret economic weapon?

One of the principal reasons for the success of the C4 series Undercover Boss was the emotional punch packed by seeing wealthy individuals recognise the hard work and commitment of their employees. Often alien to the shop floor themselves, they went back to the boardroom with new compassion for their frontline staff.

The experience typically gave executives fresh ideas on how to run their companies more efficiently too, and few would argue against the logic of this process. It is therefore surprising that worker representation on boards, essentially undercover boss in reverse, is not more entrenched in UK corporate governance.

Worker representation on boards gives employee representatives a voice at executive management levels – a system that has formed part of German management practices since the 1970s and is common across Europe. However, it remains a rarity in the UK. The 2010 European Participation Index compiled by the European Trade Union Institute (ETUI) shows the UK scoring particularly low for board-level representation.

Germany remains one of the European leaders in so-called co-determination. While it would be a stretch to intimate that their economic success has resulted from embracing this practice, it certainly contradicts arguments that incorporating representation of employees into governance could be a drag on performance. On the contrary, it seems that there is a business as well as moral case for the representation of “ordinary” workers at senior management levels, maintaining a connection between the shop floor and the leadership.

Large German companies have adapted the model so that there is typically a two or three tier model of management.  This allows employees influence on the broad direction of the company without needing the detailed knowledge necessary to run the operation day-to-day. For companies with more than 500 employees, their supervisory board must have at least one-third employee representatives (Source: Friedrich-Ebert-Stiftung/High Pay Centre). A workers’ committee will often also sit within this hierarchy for consultation on decisions that affect them directly. Shareholder interests are directly represented in addition.

The UK could develop an operating model tailored to its existing corporate governance mechanisms. One of the criticisms of worker representation in the past, especially among mutual organisations, is that individuals were appointed to boards without the requisite experience needed to give insight into executive-level decisions. However, the central goal of co-determination should be to provide insight on issues that will impact on the workforce and overall context to business decisions. As long as both parties are clear on the mandate, this should provide an effective line of communication through all levels of the business, rather than taking individuals out of their depth in decision-making. Equally, as the issue of high executive pay continues to rouse public anger, a stronger voice for employees outside of a union structure could provide a moderating influence.

At a time when the “John Lewis” model of employee engagement is capturing both public and corporate imaginations, bold British businesses could lead the way in demonstrating how this system could be adapted to the benefit of our recovering economy.

Sophia Morrell is a Young Fabians member

This article was first featured in Volume 19, Issue 1 | Autumn 2015 of Anticipations

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